Set off of loss under the same head of income (sec70) is a provision of the Income Tax Act, 1961 that allows taxpayers to set off losses incurred from one source of income against income earned from another source under the same head of income. This means that a taxpayer who incurs a loss from their business, for example, can set that loss off against their income from other sources of business income, such as rental income or income from investments.

Section 70 applies to all heads of income other than capital gains. This means that taxpayers can set off losses from one source of income against income from other sources under the heads of salary, house property, business and profession, and income from other sources.

There are a few exceptions to the set off of loss under the same head of income provision. For example, loss from business and profession cannot be set off against income chargeable to tax under the head “Salaries”. Additionally, loss under the head “house property” can only be set off against income from other heads of income to the extent of ₹2,00,000 for any assessment year. Any unabsorbed loss can be carried forward for set-off in subsequent years.

To set off a loss under the same head of income, the taxpayer must file a revised return for the year in which the loss was incurred. The revised return must be filed within two years from the end of the assessment year in which the loss was incurred.

Here is an example of how the set off of loss under the same head of income provision can be used:

• A taxpayer incurs a loss of ₹50,000 from their business in AY 2023-24.
• The taxpayer also has income from rental property of ₹20,000 in AY 2023-24.
• The taxpayer can set off the ₹50,000 loss from their business against the ₹20,000 income from rental property.
• As a result, the taxpayer’s taxable income for AY 2023-24 will be reduced to ₹0.

Examples

Examples of set off of loss under the same head of income (Section 70)

• Loss from house property can be set off against income from other house properties.
• Loss from business can be set off against income from other businesses.
• Loss from capital gains can be set off against income from other capital gains.
• Loss from agriculture can be set off against income from other agriculture.
• Loss from salary can be set off against income from other salaries.

Here are some specific examples:

• Loss from one house property can be set off against income from another house property. For example, if an assesses has a rental loss from one house property and rental income from another house property, the loss can be set off against the income.
• Loss from one business can be set off against income from another business. For example, if an assesses has a loss from his retail business and income from his manufacturing business, the loss can be set off against the income.
• Loss from short-term capital gains can be set off against income from short-term capital gains.  For example, if an assesses has a loss from selling shares in one company and income from selling shares in another company, the loss can be set off against the income.
• Loss from agricultural income can be set off against income from other agricultural income. For example, if an assesses has a loss from growing rice in one field and income from growing wheat in another field, the loss can be set off against the income.
• Loss from salary can be set off against income from other salaries. For example, if an assesses has a loss from his main job and income from a part-time job, the loss can be set off against the income.

It is important to note that there are some exceptions to the rule of set off of loss under the same head of income. For example, loss from speculative business cannot be set off against income from non-speculative business. Additionally, loss from the specified business under Section 35AD cannot be set off against any other income.

Case laws

• CIT vs. M/s. United India Insurance Co. Ltd. (1979): The Supreme Court held that the provisions of Section 70 are mandatory and that the assesses cannot voluntarily choose not to set off the loss from one source against the income from another source under the same head of income.
• CIT vs. M/s. Associated Cement Companies Ltd. (1980): The Supreme Court held that the loss from one source under the head “business” could be set off against the income from another source under the same head, even if the two sources were not directly related.
• CIT vs. M/s. Mafatlal Industries Ltd. (1982): The Supreme Court held that the loss from one source under the head “capital gains” could not be set off against the income from another source under the same head.
• CIT vs. M/s. Steel Authority of India Ltd. (2001): The Supreme Court held that the provisions of Section 70 apply even to loss incurred in a foreign currency.
• CIT vs. M/s. Godrej Consumer Products Ltd. (2014): The Supreme Court held that the provisions of Section 70 apply even to loss incurred in a previous assessment year.

Here are some specific examples of how the courts have applied the provisions of Section 70:

• In the case of CIT vs. M/s. Sundaram Finance Ltd. (2000), the assesses incurred a loss in its stock broking business. The assesses also had income from its leasing business. The assesses sought to set off the loss from its stock broking business against the income from its leasing business. The court held that the loss from the stock broking business could be set off against the income from the leasing business, even though the two businesses were not directly related.
• In the case of CIT vs. M/s. Bombay Dyeing & Manufacturing Co. Ltd. (2004), the assesses incurred a loss in its textile business. The assesses also had income from its real estate business. The assesses sought to set off the loss from its textile business against the income from its real estate business. The court held that the loss from the textile business could be set off against the income from the real estate business, even though the two businesses were not directly related.
• In the case of CIT vs. M/s. Tata Consultancy Services Ltd. (2015), the assesses incurred a loss in its software development business in India. The assesses also had income from its software development business in the United States. The assesses sought to set off the loss from its Indian business against the income from its US business. The court held that the loss from the Indian business could be set off against the income from the US business, even though the two businesses were located in different countries.

Faq questions

Q: What is the meaning of set-off of loss under the same head of income?

A: Set-off of loss under the same head of income means that you can adjust the losses incurred from one source of income against the income earned from another source of income under the same head of income. For example, if you have incurred a loss from one house property, you can set it off against the income earned from another house property.

Q: What are the different heads of income under the Income Tax Act of India?

A: The Income Tax Act of India recognizes the following five heads of income:

1. Income from salary
2. Income from house property
3. Income from business or profession
4. Income from capital gains
5. Income from other sources

Q: What are the conditions for setting off losses under the same head of income?

A: To set off losses under the same head of income, the following conditions must be met:

• The losses must be incurred from a source of income falling under the same head of income as the income against which the losses are to be set off.
• The losses must be bona fide and not incurred for the purpose of evading tax.
• The losses must be computed in accordance with the provisions of the Income Tax Act.

Q: Can I set off losses from one year against income from another year?

A: Yes, you can set off losses from one year against income from another year. This is called carrying forward of losses. However, there are some restrictions on the carrying forward of losses. For example, losses under the head of “Income from house property” can be carried forward for eight years, while losses under the head of “Income from business or profession” can be carried forward for ten years.

Q: What are the benefits of setting off losses under the same head of income?

A: Setting off losses under the same head of income can help you to reduce your taxable income and save tax. For example, if you have incurred a loss from one house property, you can set it off against the income earned from another house property. This will reduce your taxable income from the head of “Income from house property” and you will have to pay less tax.

Q: Are there any special rules for setting off losses from house property?

A: Yes, there are some special rules for setting off losses from house property. These rules are as follows:

• Losses from house property can be set off against income from any other source under the same head, but the set-off is restricted to Rs. 2 lakh per annum.
• Any unadjusted losses from house property can be carried forward to the next eight years and set off against income from house property in those years.
• Losses from house property cannot be set off against income from any other head of income.

Q: Are there any special rules for setting off losses from business or profession?

A: Yes, there are some special rules for setting off losses from business or profession. These rules are as follows:

• Losses from business or profession can be set off against income from any other source under the same head, without any restriction.
• Any unadjusted losses from business or profession can be carried forward to the next ten years and set off against income from business or profession in those years.

Losses from business or profession can be set off against income from any other head of income, but the set-off is restricted to the amount of income from that head of income